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Sec Approves New Rule Limiting Political Gifts By Muni Bond Dealers

The Securities and Exchange Commission approved a new rule that sharply restricts political contributions by municipal bond dealers, one of the most significant reforms in the market's history.

By a unanimous vote, the commission approved a rule that generally prevents muni bond broker-dealers from doing business with local jurisdictions within two years of making a political contribution to a local office holder or candidate.

There are some exceptions. Contributions to federal candidates, special-interest political-action committees and others who lack influence over awarding muni bond contracts are exempt from the rule.

The commission also adopted a rule requiring municipal bond dealers to take greater steps to ensure that the bonds they sell aren't too risky for their customers.

The political contribution rule is the subject of a federal lawsuit in Alabama, where a local bond dealer contends it would restrict 1st Amendment freedoms. The suit is against the Municipal Securities Rulemaking Board, a panel that develops advisory rules for the industry and is subject to SEC oversight.

The four SEC commissioners-one seat on the five-member panel is vacant-all expressed the desire to reduce political influence-peddling in the $1.2 trillion market.